WIDER ATLANTIC POLICY PAPER SERIES

NORTH-SOUTH REBALANCING
The Role of Innovation, Technology Transfer, and Sharing of Best Practices

BARBARA KOTSCHWAR
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On the cover: A sugar cane plantation in Brazil. wsfurlan/istockphoto
North-South Rebalancing
The Role of Innovation, Technology Transfer,
and Sharing of Best Practices
Wider Atlantic Policy Papers
May 2014
By Barbara Kotschwar
1
1
Barbara Kotschwar has been a research fellow with the Peterson Institute for International Economics since 2007. She is
also adjunct professor of Latin American studies and economics at Georgetown University, where she has taught courses on
political economy and trade and integration in the Americas since 1998.
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trade Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Heading Off Resource Curse Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Social Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Environment and Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
North-South Rebalancing 1
Introduction
1
Between 1980 and
2011, South-South
trade increased from
less than 8 percent to
more than 26 percent
of world merchandise
trade.
T
he initial decades of the 21
st
century mark
the emergence of the global South. Countries
long classified as developing have taken on
a greater weight in the world, and their growing
influence is changing the dynamics of international
economics, politics, and society.
The Atlantic region has long been a source of
ideas and inspiration. From the society-changing
products of the industrial revolution to the
technological leaps and bounds emanating from
Silicon Valley, Europe and the United States have
been the traditional founts of innovation. Now the
countries of the South Atlantic are contributing
to this tradition, offering innovative policies
responding to modern conditions. These countries,
by offering innovative solutions to 21
st
-century
challenges, are crafting a new, modern transatlantic
space.
This paper will focus on four trends in which
countries of the South Atlantic have emerged
as thought leaders. The first is agenda-setting
in the international trading regime. As trade
has become a greater component of GDP across
the board, the rules within the World Trade
Organizations (WTO) agreements have become
more important and, arguably, more contentious.
South Atlantic countries have played key roles in
advancing developing-country needs in this arena.
Second is in the policy response to best mitigate
against challenges emanating from the natural
resource curse. As Asias demand for primary
goods has expanded, so has the risk to primary
commodity exporters of the negative consequences
of sudden good economic fortune. Countries in
Latin America and Africa have developed and
implemented innovative measures that will guard
their countrys prosperity for future generations
and can serve as a model for others. Third is the
challenge of poverty alleviation. The paper explores
several policies that have proven to be key factors in
the rise of the Latin American and African middle
classes policies from which best practices can
hopefully be replicated to keep those that have
escaped poverty in the coveted middle class as well
as spur greater opportunities for those still below
the poverty level. Finally, the challenge of climate
change threatens countries that are closer to the
equator more immediately and more intensely
than those that are farther away. The South
Atlantic countries are responding to this threat and
developing innovative approaches to address this
issue.
The emerging market and developing economies
have seen their share of global income rise from
39 to 48 percent during this time period, and are
projected to reach 50 percent by 2015.
1
Between
1980 and 2011, South-South trade increased
from less than 8 percent to more than 26 percent
of world merchandise trade.
2
In contrast, the
G7 economies, which in 2003 made up over 60
percent of world income, had fallen to just over 50
percent by 2013. This shift has been driven largely
by the rise of developing Asia, notably China,
3
a
region whose share of world GDP rose from 16
to 23 percent during these ten years. However,
developing countries in the Wider Atlantic geo-
economic area have also experienced an upward
shift in their economic and political status.
4

The growing influence of developing countries,
1
IMF. 2013. World Economic Outlook. Washington, DC: Inter-
national Monetary Fund.
2
UNDP. 2013. Human Development Report 2013. The Rise of
the South: Human Progress in a Diverse World. New York: United
Nations.
3
China is currently the worlds second largest economy when
measured in terms of GDP at current prices in 2010. If measured
in PPP terms, it is the worlds largest economy (See Subramanian
2011a and 2011b).
4
For a definition of the Wider Atlantic, see Sparding, Peter.
2014. Trade in the Wider Atlantic and the Transatlantic Trade
and Investment Partnership. Wider Atlantic Policy Papers.
Washington, DC: German Marshall Fund. March. http://www.
gmfus.org/archives/trade-in-the-wider-atlantic-and-the-transat-
lantic-trade-and-investment-partnership/
The German Marshall Fund of the United States 2
pictured in Figure 1, are changing the dynamics of
international economics, politics, and society.
This phenomenon is keenly felt in the Wider
Atlantic. The principal protagonists driving the
economic, strategic, and cultural interactions
between the countries on either side of the Atlantic
Ocean have traditionally been the European
countries, the United States, and Canada (though
the latter is often aggregated with the United
States). As Ian Lesser writes, the future of the
Atlantic space will be heavily influenced by the
South Atlantic, with this shift driven by the rise of
Brazil and South Africa as global actors
5
Other
South Atlantic emerging markets such as Mexico,
Chile, Ghana, and Botswana are also making their
presence known by implementing policies, devising
5
Lesser, Ian O. 2010. Southern Atlanticism: Geopolitics and
Strategy for the Other Half of the Atlantic Rim. Brussels Forum
Paper Series. March. http://www.gmfus.org/archives/southern-
atlanticism/
mechanisms, and effecting changes felt across the
Atlantic and around the globe.
6
6
This paper refers to the South Atlantic as those countries
in Latin America and Africa whose coastlines border on the
Atlantic Ocean. Latin Americas Atlantic side includes the
Southern Cone countries Argentina, Uruguay, Brazil, and
Paraguay (although Paraguay is landlocked, it is included
because it is a member of the MERCOSUR customs union) as
well as Chile (while most of Chile borders the Pacific Ocean, it
kisses the Atlantic Ocean at its southernmost territory, including
the geopolitically important free port Punta Arenas), the Carib-
bean, and Mexico. African countries include Angola, Benin,
Cameroon, Cape Verde, Republic of Congo, Cte dIvoire, Dem.
Rep. of Congo, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau,
Liberia, Mauritania, Morocco, Namibia, Nigeria, Senegal, Sierra
Leone, South Africa, and Togo.
Figure 1. Selected regions share of world GDP (percent, measured in current
US$)
0
10
20
30
40
50
60
70
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Developing Asia LAC MENA SSA G7 Emerging markets
Source: IMF WEO database April 2014
North-South Rebalancing 3
Trade Policy
2
E
merging economies are participating more
and more in the international trading system,
and their increased prominence has been
noticed. Table 1 shows the increasing share of
developing regions South and Central America,
the Commonwealth of Independent States (CIS),
Africa, the Middle East, and Asia in world
exports, and the declining share of the United States
and Europe. Developing countries have taken an
increasingly active role in the international trading
system.
7
The Doha Development Round was
stimulated in part by the increased participation
of developing countries in the World Trade
Organization (WTO). Traditionally, the structure
and rules of the General Agreements of Tariff and
Trade (GATT) were established by the United States
and Europe.
While the original 23 GATT Contracting Parties
represented a diverse swath of countries,
8
the main
protagonists in its implementation and operation
have tended to be the United States and the
countries of the European Union. For example, six
of the nine GATT/WTO heads have hailed from
a European country.
9
That the recently appointed
director general of the trade body is a Brazilian
points to the rising prominence of the South
Atlantic in trade.
7
See, for example Odell, John S. 2006. Negotiating Trade:
Developing Countries in the WTO and NAFTA. Cambridge:
Cambridge University Press; and Hoekman, Bernard, Aaditya
Mattoo, and Philip English. 2002. Development, Trade, and the
WTO. Washington, DC: World Bank.
8
Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile,
China, Cuba, Czechoslovakia, France, India, Lebanon, Luxem-
bourg, Netherlands, New Zealand, Norway, Pakistan, Southern
Rhodesia, Syria, South Africa, United Kingdom, and the United
States.
9
1948-1968: Eric Wyndham-White (United Kingdom); 1968-
1980: Olivier Long (Switzerland); 1980-1993: Arthur Dunkel
(Switzerland); 1993-1995: Peter Sutherland (Ireland); 1995-1999:
Renato Ruggiero (Italy); 1999-2002: Mike Moore (New Zealand);
2002-2005: Supachai Panitchpakdi (Thailand); 2005-2013: Pascal
Lamy (France); 2013-present: Roberto Azevedo (Brazil).
The emerging South Atlantic middle powers have
not only seen their weight in international trade
enhanced, they have also had an impact on the
substance of the international trading regime. Their
impact has been particularly evident in the Doha
round of WTO negotiations, where developing
countries have come to play an increasingly
important role in the negotiating process.
Sometimes serving as representatives of the global
South, both Brazil and South Africa have had
considerable influence on the negotiating agenda,
proposing new issues, or, at times, blocking the
negotiations.
One outcome successfully spearheaded by Brazil
and South Africa was the inclusion of access to
affordable medicines on the international trade
agenda. Despite strong initial resistance from
pharmaceutical exporters, they ultimately prevailed,
the end result being the 2001 Doha Declaration on
the TRIPS Agreement and Public Health (known as
Table 1. Selected regions and countries share in
world exports (percentage)
2003 2012
World 100.0 100.0
North America 15.8 13.2
South and Central America 3.0 4.2
Brazil 1.0 1.4
Europe 45.9 35.6
CIS 2.6 4.5
Africa 2.4 3.5
South Africa 0.5 0.5
Middle East 4.1 7.5
Asia 26.1 31.5
China 5.9 11.4
Japan 6.4 4.5
India 0.8 1.6
Source: WTO International Trade Statistics 2013
The German Marshall Fund of the United States 4
the Doha Declaration), and subsequent Decision on
the Interpretation of Paragraph 6 reached in 2003,
which affirmed the flexibilities available under the
Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS) to member states seeking
to protect public health. This decision was a win
for developing country consumers, who often do
not have access to expensive medicines, and a boost
to the generic drug industry in several developing
countries.
This issue resonated in both Latin America and
Africa. Brazil has long been an example of success
in the fight against the AIDS epidemic, and as
such was a natural leader for this initiative. Brazils
technical capacity and political commitment to
eradicating AIDS included the implementation
of national prevention programs. In 1996, Brazils
Congress passed a law mandating universal
provision of retroviral medication. At that time,
South Africa had the largest number of people
suffering from HIV or AIDS, so it had a significant
interest in ensuring low-cost access to medicines.
South Africa, as part of the African Group of
WTO members, pushed to have access to generic
medicines on the Doha agenda. The final version of
the declaration was negotiated by the United States
and Brazil.
North-South Rebalancing 5
Several South Atlantic
countries have
successfully forged
policies to mitigate
the negative impacts
of extraction-based
wealth and stabilize
economies that are
highly vulnerable to
external shocks and
fluctuations. Two
prominent examples are
commodity exporters
Chile and Ghana.
T
he commodity boom spurred by strong
demand in Asia gave rise to a decade of
strong growth in many commodity-exporting
developing countries. Rising commodity prices
often lead to the natural resource curse, which is
associated with the so-called Dutch Disease of
overvaluation and deindustrialization. It is also
often associated with corruption and violence.
Natural resource-dependent countries tend to
score lower on the UN Human Development
Index, and receive worse marks than other
similar countries on indicators of corruption and
transparency.
10
Several South Atlantic countries
have successfully forged policies to mitigate the
negative impacts of extraction-based wealth and
stabilize economies that are highly vulnerable to
external shocks and fluctuations. Two prominent
examples are commodity exporters Chile and
Ghana. Chiles steady management of commodity
price fluctuations in a manner that allows counter-
cyclical fiscal policy has served as a model for
others. Ghanaian officials carefully adopted a way
of disciplining oil revenues and distributing these
gains to the populace, so far avoiding the nefarious
effects of oil wealth on the societies of some of its
neighboring countries.
Chile: Institutionalizing Fiscal Stability
Chiles counter-cyclical policy framework, largely
inspired by the Scandinavian model and adapted
to developing countrys needs, is widely cited as an
example to follow. Chiles main policy challenge
is to manage the volatility of copper tax revenues,
particularly given its increasing dependence on
them, which currently make up about 24 percent
of total government revenues, or 6 percent of
10
For a comprehensive discussion of this phenomenon,
see Cullen S. Hendrix and Marcus Noland, forthcoming.
Confronting the Curse: The Economics and Geopolitics of
Natural Resource Governance. Washington, DC: Peterson
Institute for International Economics.
GDP.
11
Chiles experience could be instrumental,
particularly as Northern countries endeavor to
consolidate their fiscal position and construct
effective automatic stabilizers.
Chile adopted a Copper Stabilization Fund in
1985 that mandated that revenue be saved when
coppers price rose above a certain target and
allowed withdrawals when the price fell below
the target. Several improvements were made to
this model. In 2001, Chile adopted a non-binding
fiscal responsibility rule that institutionalized
consideration of the business cycle as well
as copper price fluctuations and mandated a
structural budget surplus of 1 percent of GDP.
In 2006, this rule was codified as Law No. 20128.
Chile also created two sovereign wealth funds
that replaced the original Copper Stabilization
Fund: the Pension Reserve Fund (PRF) and the
Economic and Social Stabilization Fund (ESSF),
established with the revenues from the old Copper
Stabilization Fund, to finance Chiles goals in the
areas of public education, health, and housing.
The Fiscal Responsibility Rule also mandates that
the difference between the effective fiscal surplus
and the contributions to the pension fund and the
Central Bank be deposited into the ESSF.
The Chilean model is thus comprised of three
pillars:
A budget target, initially set at a surplus of
1 percent of GDP, then revised, in 2008, to
balanced.
12

11
Dabn, Teresa. 2011. Strengthening Chiles Rule-based Fiscal
Framework. IMF Working Paper WP/11/17. Washington, DC:
International Monetary Fund.
12
The target was revised to 1 percent under President Michelle
Bachelet in 2007 as macroeconomic conditions and the Central
Bank of Chiles balance sheet had improved and to 0 percent in
2009 to allow for countercyclical fiscal policy in the wake of the
global financial crisis.
Heading Off Resource Curse Outcomes
3
The German Marshall Fund of the United States 6
Conscious of the natural
resource curse, the
Ghanaian government
developed a mechanism
to slow government oil
spending and avoid
some of the outcomes
seen in oil-producing
neighbors, with the rich
benefitting, the poor
getting even poorer, and
the degradation of the
non-oil economy.
The mandate that the budget target be defined
structurally. According to Chilean policy,
deficits are only allowed if output falls short of
trend or if copper prices fall below trend.
The establishment of an independent panel of
experts to project trend prices.
13
Chile was an early adopter of fiscal rules, which
are used to improve the sustainability of public
debt, control government size, or contribute to
fiscal stability, and is a good example of what the
Economic Commission for Latin America and
the Caribbean (ECLAC) has termed the fiscal
covenant in Latin America, with countries
designing an institutional structure that enforces
the principles of stability and responsibility.
14
The
number of countries adopting fiscal rules has
grown in the past decade. According to the IMF,
15

there were 10 such countries in 1990, 30 in 2001,
and over 50 in 2009. Chiles important innovations
are the independent panel of experts and a regular
and transparent review of the mechanism.
16
Ghana: Balancing Petroleums Excesses
Significant offshore petroleum discoveries were
made in Ghana starting in 2007. By the end of
2013, the governments share of oil revenues was
forecast to exceed $1 billion per year. Conscious
of the natural resource curse, the Ghanaian
government developed a mechanism to slow
government oil spending and avoid some of the
13
Jeff Frankel (2011) points out that this has helped Chile avoid
the over-optimism seen in 32 other governments including
the United States and several European governments whose
trend forecasts were consistently overly optimistic.
14
ECLAC. 1998. The Fiscal Covenant: Strengths, Weaknesses,
Challenges. LC/G.1997/Rev 1. Santiago: Chile.
15
IMF. 2009. Fiscal Rules - Anchoring Expectations for
Sustainable Public Finance. Discussion paper approved by
Carlo Cottarelli. Washington, DC: International Monetary Fund.
December 19.
16
IMF. 2007. Assessing Chiles Reserve Management. IMF
Survey. Washington: International Monetary Fund.
outcomes seen in oil-producing neighbors, with the
rich benefitting, the poor getting even poorer, and
the degradation of the non-oil economy. Ghanas
Petroleum Revenue Management Act (Act 815)
was implemented in 2011,
17
and it has been lauded
as an innovative approach.
18
The law outlines
clear mechanisms for collecting and distributing
petroleum revenue, indicating the percentage
that should be directed to the annual budget and
how much should be saved for later. The law also
enhances transparency in the use of oil revenues by
creating an oversight body: the Public Interest and
Accountability Committee (PIAC). The PIAC is
comprised of 13 members from civil society. Its role
is to monitor compliance with the law, publishing
its findings semiannually. Its first report, which
found positive fiscal news but also identified areas
for improvement, was lauded by the Revenue Watch
Institute, an NGO dedicated to accountability in
the extractive sector, as setting a new standard for
accountability.
19

Chiles and Ghanas responsible fiscal management
and even-handed promotion of transparency will
serve their future generations well and are excellent
models for other countries struggling to manage
commodity wealth.
South Atlantic developing nations have also
played an important role in boosting transparency
in the international resource regime. South
Africas key role in convening African diamond-
producers in 2000 to exclude conflict diamonds
17
Available at http://www.mofep.gov.gh/sites/default/files/
reports/Petroleum_Revenue_Management_Act_%202011.PDF.
18
Dovi, Etam. 2013. Ghanas new path for handling oil
revenue: Seeking to avoid the ill effects of Africas resource
curse. Africa Renewal. January 20; and Moss, Todd and Lauren
Young. 2009. Saving Ghana from Its Oil: The Case for Direct
Cash Distribution. CGD Working Paper 186. Washington, DC:
Center for Global Development. October.
19
Tarrant Tayou, Emma. 2012. Ghana Oil Report Sets New
Standard for Accountability. Revenue Watch. May 18. http://
www.revenuewatch.org/news/blog/ghana-oil-report-sets-new-
standard-accountability (accessed March 3, 2014).
North-South Rebalancing 7
from the legitimate trade by introducing a
certification scheme has arguably influenced other
transparency initiatives geared towards the natural
resource sector such as the Extractive Industries
Transparency Initiative (EITI) and the UN Global
Compact.
The German Marshall Fund of the United States 8
The South Atlantic has
made a significant
contribution to how
the world thinks about
alleviating poverty,
particularly the problem
of poverty in middle-
income countries.
O
ne of the principal driving trends in the
global economy is the dramatic rise of the
middle class in the developing world. Both
Latin America and Africa have seen a significant
portion of their population move from poverty into
the middle class. The African Development Bank
estimates that the middle class in Africa has tripled
in the past 30 years.
20
Latin Americas middle
class has famously grown by 50 percent over the
past decade, and now represents 30 percent of the
population, according to the World Bank.
21
The South Atlantic has made a significant
contribution to how the world thinks about
alleviating poverty, particularly the problem of
poverty in middle-income countries (MICs).
The high and sustained growth of the 2000s
has served to allow many developing countries,
particularly commodity exporters, to move from
lower to higher income categories as defined by
international development institutions
22
and to
bring people out of poverty and into a growing,
though often still vulnerable, middle class. A
major challenge for middle income countries
is maintaining macroeconomic stability while
enacting policies that promote growth as well
as social equity and more equitable income
distribution.
The middle income countries in the South Atlantic
have a track record of best practices in the area
20
The ADB defines middle class as those spending between $2
and $20 per day. African Development Bank. 2011. The Middle
of the Pyramid: Dynamics of the Middle Class in Africa. ADB
Market Brief. April 20. www.afdb.org.
21
Ferreira, Francisco H.G., Julian Messina, Jamele Rigolini,
Luis-Felipe Lpez Calva, Maria Ana Lugo, and Renos Vakis.
2013. Economic Mobility and the Rise of the Latin American
Middle Class. Washington, DC: the World Bank.
22
For example, in July 2013, Antigua and Barbuda, Chile,
Latvia, Lithuania, the Russian Federation, and Uruguay all
moved from Upper Middle to High income; Belize moved from
Lower to Upper Middle; and Hungary from High to Upper
Middle in the World Banks country classifications (http://data.
worldbank.org/news/new-country-classifications).
of poverty alleviation. Brazil has lifted about 20
million people out of poverty with a mix of sound
macroeconomic policies, particularly by bringing
inflation under control and through directed social
programs.
23
President Dilma Rousseff has called
her administrations most obstinate fight the fight
to eradicate indigence (defined as those earning less
than $45 per month).
24

Conditional Cash Transfer Programs: Effective
Tools to Boost Social Capital
One principal vehicle for poverty alleviation
has been conditional cash transfer programs
(CCTs). Pioneered by Mexico and Brazil in the
late 1990s and early 2000s, CCTs have been
characterized by The Economist as An anti-poverty
scheme invented in Latin America [] winning
converts worldwide.
25
The innovation of CCTs
is that monetary transfers are conditioned on the
recipients meeting a set of requirements, often
designed to advance social objectives. The Latin
American CCTs aim to alleviate short-term poverty,
but also seek to serve the medium- and long-term
goals of directly enhancing social capital through
improved participation in education and health
services, particularly for the young. CCTs offer two
innovations to poverty alleviation. First, financial
transfers are channeled directly to qualifying
candidates, generally mothers (or any caregiver
directly responsible for children). These transfers
are then contingent on the recipient demonstrating
compliance with particular requirements, in this
case, school attendance and vaccination of the
caregivers child/children. Second, the CCTs must
23
See, for example, Ferreira et al.
24
Dilma Rousseff, quoted in Forero, Juan. 2011. Fast-growing
Brazil Tries to Lift its Poorest. The Washington Post. May 11.
http://www.washingtonpost.com/world/americas/fast-growing-
brazil-tries-to-lift-its-poorest/2011/05/10/AFqgEEpG_story.
html.
25
The Economist. 2008. An anti-poverty scheme invented in
Latin America is winning converts worldwide February 7.
http://www.economist.com/node/10650663.
Social Policy
4
North-South Rebalancing 9
The success stories
from Mexico and
Brazil have spurred
widespread emulation
by other countries. Also
notable is their scale:
Mexicos Oportunidades
reaches more than 5
million households,
Bolsa Familia more than
11 million.
conduct controlled experiments to discover which
policies are working, determine best practices, and
adjust accordingly.
Mexico initiated the CCT trend on a large scale
with the 1997 adoption and implementation of
the Programa de Educacin, Salud y Alimentacin
(Progresa), which subsequently evolved into the
current program known as Oportunidades in
2002. Oportunidades targets poverty by providing
payments to families in exchange for demonstrated
school attendance, health clinic visits, and
nutritional supplements. While Progresa was set up
under President Zedillo, and Oportunidades under
President Vicente Fox (from a different political
party than Zedillo), efforts were made to establish
the program as independent from party politics,
which was instrumental to its success and longevity.
An important element of the program since the
beginning has been its independent evaluation.
Progresa was first evaluated in 1997, then in 2000
by the International Food Policy Research Institute
(IFPRI).
26
While Mexicos Oportunidades was the first of
its kind, Brazils Bolsa Familia and its network of
related programs is the largest CCT program in the
world. Brazil launched a network of social policies
in the late 1990s and 2000s that are widely credited
for bringing tens of millions of its citizens out of
poverty. Upon taking office in 2003, President Luiz
Inacio Lula da Silva implemented a program called
Fome Zero, or Zero Hunger, citing the right to food
as a basic human right. This built upon programs
implemented by Belo Horizonte Mayor Patruz
Ananias, who was later named Minister of Social
Development and Hunger Alleviation, as well as
upon the Bolsa Escola program, which had been
implemented in Brasilia in the 1990s. This led to
26
Frankel (2012b) attributes this in part to fuelling the
Randomized Control Trials (RCT) movement in development
economics, most famously espoused by prize-winning econo-
mist Esther Duflo.
a web of conditional cash transfer programs, now
known as Bolsa Familia, which many credit with
dramatically reducing poverty in Brazil. Surveys
of Latin American CCTs show that they have been
effective in bolstering human capital accumulation
in poor households by increasing school enrollment
rates, improving preventive health care, and raising
household consumption.
The success stories from Mexico and Brazil have
spurred widespread emulation by other countries.
Also notable is their scale: Mexicos Oportunidades
reaches more than 5 million households, Bolsa
Familia more than 11 million.
27
The rationale for
having the government subsidize the cost is to
address societal bottlenecks to particular social
services, in this case health and education. The
governmental subsidy serves to cover the costs of
obtaining these services transportation costs,
lost time, and lost income from child labor and
the cost is compensated by the long-term societal
benefits. Equity considerations giving the poor
equal access to education and health services
also play a role. Payments are made from the
government directly to the recipient family in an
attempt to reduce overhead and avoid corruption.
Other countries, such as Chile, Jamaica, Honduras,
Nicaragua, Peru, Malawi, and Zambia have also
taken note and instituted similar programs. New
York City has famously adopted similar reforms,
with the Opportunity NYC program directly
inspired by Oportunidades (right down to the
name).
28

27
Feitosa de Britto, Tatiana. 2009. The Emergence and Popu-
larity of Conditional Cash Transfers in Latin America. Chapter
9 in Lagarde, M (ed) Social protection for the poor and poorest:
concepts, policies, and politics. Basingstoke: Palgrave-McMillan.
28
Opportunity NYC was a CCT program launched by NYC
Mayor Bloomberg in 2007. It was the first CCT program in a
developed country. See, for example, Riccio, 2010. http://www.
npc.umich.edu/publications/policy_briefs/brief22/policybrief22.
pdf.
The German Marshall Fund of the United States 10
In Africa, a key story has
been the rapid jump in
mobile phone adoption,
particularly for business
use and banking but
also to help drive a
thriving grass-roots civil
network.
Mexico has also paved the way with regards to how
the original program has developed in keeping
with the countrys evolving needs. At first, Progresa
served to bolster the incomes of the poor during
difficult economic times as Mexico was still picking
itself up from the economic hit of the 1980s debt
crisis. Then, buffeted by the 1994 peso crisis, it
recognized and sought to overcome decades of
underinvestment in human capital among the
poor and in specific regions of the country. When
Progresa evolved into Oportunidades in 2006,
this transition also increased the scope of the
program: Oportunidades now includes education
beyond secondary school, skills training for
the unemployed in urban areas, and additional
subsidies for seniors over 70.
29

As demonstrated, many Latin American countries
have taken steps to rewrite the social contract, with
significant results.
Middle Income Countries, New Technologies,
and Democracy
Another prominent feature of middle class societies
is the demand for better quality institutions, better
services, and greater welfare. This has given rise
to a network of communication and a new class of
civic expression among countries and regions.
In Africa, a key story has been the rapid jump in
mobile phone adoption, particularly for business
use and banking but also to help drive a thriving
grass-roots civil network. Africa is the host to
the most sophisticated mobile payment system
in the world in the form of Kenyas M-Pesa (the
m stands for mobile; pesa is the Swahili word for
money). Originally developed to allow repayment
of microfinance loans, M-Pesa allows any user with
a national ID card or passport to deposit, withdraw,
or transfer money through her or his mobile device.
In Africa, mobile banking has rapidly leapfrogged
29
Feitosa de Britto.
traditional banks, allowing users to effect business
transactions, receive remittances, or even receive
grants.
The continent has, in just over a decade, become
the worlds second most connected region,
following East Asia and the Pacific. This has
drastically increased the flow of information
and social organization, with dramatic effects
on civic participation (particularly among the
young), and has served as a robust platform for
business. Technologies currently used in electronic
commerce are being explored for bolstering the
continents health services and educational system.
To supplement this potential, African entrepreneurs
have begun to explore the low-cost technology
niche market, a highly dynamic group of
consumers and potential consumers. The Encipher
Inye is a tablet computer developed by a group
of Nigerian entrepreneurs. The Inyes appeal is
in its low price and its simplicity: it can connect
to the Internet via a dongle (a small device that
plugs into a computer), thereby overcoming the
infrastructure constraints that characterize many
poor countries. Wireless and broadband technology
is not yet widely available in many public places.
This can help tech-savvy youth who cannot afford
a traditional computer to become even savvier and
to apply their talents to commercial or educational
uses. This availability can also spur indigenous
innovation: local developers are designing apps that
address issues such as HIV, water and sanitation,
and education.
In Latin America, those citizens who have for the
first time experienced what it is to be middle class
to have education, better health outcomes, and
comforts that were unthinkable half a generation
ago will fight to maintain their new position.
In Brazil, a rise in public transportation fares
kicked off a weeks-long outpouring against
corruption, waste, and poor government policies,
North-South Rebalancing 11
fueled by rising inflation and low growth. In
Mexico, previously reticent citizens have taken to
social media to name and shame elites violating
rules and taking advantage of their position.
30
In
Europe, people have streamed into town squares in
countries like Turkey and Bosnia, demonstrating
against political repression, corruption, and lack of
access to freedoms and opportunities. A Turkish
protestor put it as follows: We are all linked
together, Bulgaria, Turkey, Brazil. We are tweeting
in English so we can understand each other, and
supporting each other on other social mediaWe
are fighting for different reasons, but we all want
our governments to finally work for us. We are
inspiring each other.
31
30
The Economist (May 17, 2013) cites the famous case of Lady
Profeco, the daughter of the head of the consumer protec-
tion agency, whose father was fired by the president after his
daughter called upon the agency to punish a trendy restaurant
that did not have a seat for her. Though the father was in the
hospital, staff from Profeco responded and disrupted service at
the restaurant. Other similar stories abound, with social media
helping to shine light on behavior that previously was taken for
granted and allowed to take place. http://www.economist.com/
blogs/americasview/2013/05/mexicos-cosseted-elite.
31
Faiola, Anthony and Moura, Paula, Middle-class rage sparks
protest movements in Turkey, Brazil, Bulgaria, and beyond,
The Washington Post. http://www.washingtonpost.com/world/
europe/middle-class-rage-sparks-protest-movements-in-turkey-
brazil-bulgaria-and-beyond/2013/06/28/9fb91df0-df61-11e2-
8cf3-35c1113cfcc5_story.html.
The German Marshall Fund of the United States 12
In Brazil, biofuels have
not only led to social
and environmental
benefits (although
ethanol certainly
comes with its own
environmental
challenges), but also
innovation benefits, as
the establishment of
flex fuel engines has led
to other developments.
A
significant challenge confronting the Wider
Atlantic and indeed the world is that
of climate change. While all of humanity
will feel the effects of climate change, developing
countries will feel the earliest and harshest effects.
32

It is perhaps no surprise, then, that developing
countries are at the vanguard of developing
new technologies aimed at reducing reliance on
highly polluting fossil fuels and at other means
for safeguarding the environment. The following
section examines a few such cases that can serve as
models for other countries.
Latin America as a region is aggressively working
to mitigate the effects of climate change. According
to the World Bank, For the past 20 years, Latin
America has been at the forefront of biodiversity
protection. One-fifth of the regions land has
been set aside for conservation, a total which far
surpasses the 13% averaged by other developing
regions.
33
Thus, it is no surprise that the region is
a model for best practices in climate and energy
conservation-related initiatives above and beyond
conservation targets. One principal innovator is
Brazil, which has long been at the forefront of the
ethanol revolution. Costa Rica, a key destination for
ecotourism, is developing innovative instruments to
use in the carbon marketplace.
Brazil: Flex Fuel Innovation
Brazil has gained international attention for its
innovative sugarcane system and the resulting
widespread adoption of flexible fuel cars. Brazil
effectively weaned itself off foreign oil imports
by 2006, in large part due to the development of
the ethanol industry, starting in the 1970s. This
innovation was spurred by the 1973 oil shock and
the recognition that energy costs were becoming a
bottleneck to growth. The 1975 National Ethanol
32
See, for example, World Bank (2012).
33
http://www.worldbank.org/en/news/feature/2013/09/25/latin-
america-climate-change-environment-green-innovation.
Program (Prolcool) encouraged resources to be
oriented toward the ethanol-related agriculture
production complex. Ethanol was bolstered by
government mandates on production levels as
well as subsidies that spurred the expansion of
sugarcane cultivation, established distilleries, and
encouraged the sale of vehicles that could run
on ethanol. In Brazil, biofuels have not only led
to social and environmental benefits (although
ethanol certainly comes with its own environmental
challenges), but also innovation benefits, as the
establishment of flex fuel engines has led to
other developments. The use of ethanol really
took off in 2003, when flex fuel vehicles (FFVs)
were introduced to consumers, allowing them to
pick gas or alcohol to power their cars. Flex-fuel
motorcycles were introduced in 2009.
Ethanol production from sugarcane, as produced
by Brazil, has received considerable attention as
a viable alternative to fossil fuels and a renewable
energy source that mitigates the effects of
greenhouse gas emissions.
34
While Brazilian
consumers are now able to completely customize
their petrol-ethanol fuel mix, and thus gain price
advantage depending on current market conditions,
FFVs have been slow to take off in the rest of the
world. To date, most countries lack the necessary
infrastructure to support FFVs. This could change,
as fuel prices remain high and as climate change
considerations become more pressing.
Brazil has emerged as a clear leader in biofuels
technology.
35
It is a key participant in the
main international agreements on biofuels: the
International Biofuels Forum (IBF) and the Global
34
Furtado, Andr Tossi, Mirna Ivonne Gaya Scandiffo, and
Luis Augusto Barbosa Cortez. 2010. The Brazilian sugarcane
innovation system. Energy Policy.
35
See, for example, Hall, Jeremy, Stelvia Matos, Bruno Silvestre,
and Michael Martin. (2011). Managing Technological and
Social Uncertainties of Innovation: The Evolution of Brazilian
Energy and Agriculture. Technological Forecasting and Social
Change (78): 1147-1157.
Environment and Climate Change
5
North-South Rebalancing 13
The EU and Brazil
strategic partnership
includes climate
change and alternative
energies as a priority
area, and the two have
agreed to develop
production standards in
renewable energy and
to implement Triangular
Cooperation projects
with other countries
such as the Portuguese-
speaking African
countries and Haiti.
Bioenergy Partnership (GBEP). Brazil also leads
efforts in discussing and disseminating biofuels
technology through South-South cooperation.
The MERCOSUR customs union, in which Brazil
is the largest member, includes a memorandum
of understanding (MOU) and working group
on biofuels with the aim of creating integrated
production chains in ethanol. In 2009, the Brazilian
government launched the Pro-Renova Program,
which aims to provide technical assistance to
developing countries, particularly in Africa.
This includes trade fairs, seminars with experts
in relevant fields, training courses, and the
hosting of Ethanol week.
36
Brazil has launched
cooperation activities with the CARICOM
countries, aimed at joint research and development
on energy and marketing of biofuels. Biofuel
production technology has been a significant
area of cooperation in the India-Brazil-South
Africa (IBSA) forum.
37
A biofuels MOU sets out
parameters for technology transfer, promoting
compatible frameworks for biofuels production and
consumption, information sharing on auto design
for promoting the use of biofuels, and sharing of
best practices for policymakers.
38
Brazil has also
implemented technical assistance and cooperation
programs with a number of African countries,
geared towards flex-fuel technology. Brazils
agricultural research agency (Embrapa) opened
an office in Ghana in 2008, with a view to helping
develop that countrys national ethanol industry. A
2007 bilateral cooperation agreement signed with
36
For information on more projects, see UNCTAD. 2012. State
of South-South and Triangular Cooperation in the Production,
Use, and Trade of Sustainable Biofuels. New York and Geneva:
United Nations Conference of Trade and Development.
37
See White, Lyal and Tania Cyro Costa. 2009. Biofuel Tech-
nology Transfer in IBSA: Lessons for South Africa and Brazil.
SAIIA Policy Briefing 7. November. http://www. saia_spb_07_
white_costa_20091130%20(1).pdf.
38
See, for example, the description of the IBSA Energy Working
Group, http://www.ibsa-trilateral.org/images/stories/documents/
IBSA%20Energy%20rev%20KM.pdf.
Mozambique seeks to replicate Brazils ethanol
production model in Mozambique through the
transfer of technology and agricultural expertise.
39

Brazil has also signed biofuel-related technical
assistance accords with Angola, Congo, and
Nigeria. For countries wanting to decrease their
dependency on imported fossil fuels and possessing
resources that could be converted to fuel usage,
the Brazilian experience could serve as a model.
In addition to the technology itself, the model of
government working with academia and industry
has shown success that could be worth replicating.
Brazil has also launched cooperation programs with
developed countries, aimed at disseminating their
biofuels production and consumption techniques.
The EU and Brazil strategic partnership, signed
in Lisbon in 2007, includes climate change and
alternative energies as a priority area, and the two
have agreed to develop production standards in
renewable energy and to implement Triangular
Cooperation projects with other countries such
as the Portuguese-speaking African countries and
Haiti. A 2007 MOU with the United States also
established the strategic importance of biofuels in
that bilateral relationship and pledged to advance
research and development in this field. A further
MOU signed in 2011 established a Partnership
for the Development of Aviation Biofuels with the
objective of preventing international barriers to
biofuels trade and to promote biofuels as important
to reducing GHG emissions.
Carbon Offsets: Costa Rica
Costa Rica became the first country to negotiate
the sale of forestry carbon credits in September
2013. The Costa Rican government and the Forest
Carbon Partnership Facility (FCPF) signed a letter
of intent to negotiate an Emission Reductions
39
2009. Rhetoric Surpasses Reality on Biofuels. Oxford
Analytica. November.
The German Marshall Fund of the United States 14
The government of
Morocco has put into
place a Solar Plan to
reduce the countrys
energy dependency
and create employment
and growth by taking
advantage of the
countrys access to the
sun.
Payment Agreement (ERPA) worth up to $63
million.
This initiative is an outgrowth of its Payments for
Environmental Services (PES) program, initiated
in 1999, which compensates landowners for
planting new trees and for other environmental
protection efforts. Under the PES, the Costa Rican
government would pay private landowners to
protect forests, to manage forests through selective
harvesting, or to establish plantations on their
lands. The payments acquired through the ERPA
come from a national fund. This allows producers
to grow a commodity called carbon that they
can sell domestically through so-called Certifiable
Tradable Offsets (CTOs). Through discussions with
other countries, especially Norway, Costa Rica has
found foreign investors willing to buy these carbon
offsets. Industrialized countries may eventually
use carbon offsets against their Kyoto Protocol
emissions commitments.
The September 2013 move will allow large-scale
performance-based payments. The FCPF will be
able to negotiate the purchase of carbon credits up
to $63 million, which would help meet demand
for additional landowners to participate in the PES
program. Costa Rica has pledged to achieve carbon
neutrality by 2021.
Morocco: Concentrating the Desert Sun
Morocco depends on imports for more than 95
percent of its energy needs. It also has a high level
of subsidization, which burdens the government
budget, and like many countries in the region,
Morocco is facing high unemployment. The
government of Morocco has put into place a Solar
Plan to reduce the countrys energy dependency
and create employment and growth by taking
advantage of the countrys access to the sun. One
aspect of this has been to use solar power for
electrification of often poor and rural and peri-
rural households, which are frequently outside the
reach of the electrical grid.
40
Morocco has been
lauded by the United Nations for the governments
commitment to the goal of stimulating renewable
energy, which has led to strong institutions with a
clear division of responsibility. Morocco has also
developed a solid enterprise networking platform
allowing private sector players to play a significant
role.
41
Mozambique: Using Ethanol as a Clean
Cooking Oil
While ethanol is most popularly used to replace
petrol in automobiles, in Africa, cassava is being
processed into ethanol for cooking. This is in part
to address the serious issue of deforestation: forests
in Africa are being cut down at a rate of 4 million
hectares a year, more than twice the worldwide
average. Charcoal is still widely used for home
cooking, posing a threat to these forests as well as
public health the smoke from cooking using
these solid fuels also triggers respiratory problems
that cause nearly 2 million deaths in the developing
world each year. The worlds first sustainable
cooking-fuel plant opened in Mozambique in 2012,
with the goal of producing 579,000 gallons a year.
42

Kenya: Mitigating the Risk of Climate Change
through Innovation
Kenyas Climate Innovation Center, launched
in 2012, will assist entrepreneurs in securing
financing and other services for their companies
while helping the country and region address the
40
See, for example, GTZ (2007)
41
Vidican, Georgeta. (2012). Innovation systems for renewable
energy in the MENA: A comparative perspective on Egypt and
Morocco. New York: United Nations University.
42
Biofuels Digest. 2012. CleanStar launches first cooking fuel
facility in Mozambique; alternative to charcoal cooking, health
risks, at hand in Africa. May 18. http://www.biofuelsdigest.
com/bdigest/2012/05/18/cleanstar-launches-first-cooking-fuel-
facility-in-mozambique-alternative-to-charcoal-cooking-heath-
risks-at-hand-in-africa/.
North-South Rebalancing 15
effects of climate change. The CIC aims to become
the business hub for African climate technology
entrepreneurs. The center is the first of its kind
in the world and will allow small and medium
enterprises in Kenya and the region to address
climate change by accelerating business in sectors
such as energy, agriculture, and water supply. As the
CIC continues to operate and more data become
available, further investigation will be necessary to
measure its success.
The German Marshall Fund of the United States 16
T
he South Atlantic has come into its own. With
high growth rates in many countries and
economic, political, and social advancements
over the past decades, the countries of the South
Atlantic are not only prepared to take on an
increasing leadership role by participating in
groups such as the BRICS, for example but are
also producing innovative technologies and policies
that satisfy their domestic needs and that could
have much wider application.
The countries of Africa and Latin America
have scored several victories in advancing
developing country interests at the WTO, most
importantly consolidating the access to medicines
for developing countries. Developing country
commodity exporters have developed mechanisms
for responsibly managing their commodity wealth,
institutionalizing counter-cyclical spending
mechanisms and transparent redistributive policies
to ensure that the countries gains do not become
their bane. In the area of social policy, South
Atlantic countries innovative policies have been
replicated in other developing countries, and even
in places such as New York. In the area of climate
change, a key challenge for the Wider Atlantic
and the world, Southern countries are pushing
the envelope to develop innovative policies that
may help the world face its most pressing current
challenge.
Conclusions
6
North-South Rebalancing 17
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